Rate Lock, Explained in 60 Seconds

The video above answers this in sixty seconds, and it is on its way. This is the written companion to it, for anyone who would rather read — and for the parts that do not fit in a minute.

You are under contract on a house. Closing is five weeks away. Between now and then the mortgage market can move in either direction, and on a thirty-year loan a small move is a meaningful amount of money. A rate lock is what stops that from being your problem.

What a Rate Lock Actually Is

A rate lock is a lender committing, in writing, that a specific rate and a specific set of pricing terms will still be available to you when your loan closes — provided it closes inside an agreed window and the loan being closed is the loan that was quoted.

Three things are being fixed at once, and only the first is the one people think about: the interest rate, the discount points or credit attached to it, and the loan program itself. That is why a lock confirmation is a document with several numbers on it rather than a single percentage.

A lock is a promise about the market. It is not a promise about your approval.

What It Protects You From, and What It Does Not

It protects you from the market. If mortgage rates rise while your file is in underwriting, the rise is not yours — the lender absorbs it, which is precisely what you are being offered. Put your own numbers into a payment calculator at your quoted rate and then half a point above it: the gap between those two figures, every month for as long as you hold the loan, is what the lock is worth.

It does not protect you from underwriting. A locked rate on a loan that is later declined is worth nothing, because there is no loan for the rate to attach to. The lock and the approval are two separate processes running side by side, and a lock says nothing about whether the second one will finish.

It also does not protect you from a lower rate. If the market improves after you lock, you are held to the number you agreed — which is the cost of the protection, and the reason float-downs exist.

How Long, and Why a Longer One Costs More

Locks are usually offered in steps — commonly somewhere between a fortnight and two months, with thirty and forty-five days the two most often used on a purchase. The exact menu is a lender’s own, not an industry rule.

A longer lock always costs more than a shorter one, and the reason is straightforward: the lender is guaranteeing a price against a market it cannot control for longer, so it prices that risk in. You will rarely see it as a fee. It shows up as a slightly higher rate, or as fractionally worse pricing at the same rate.

Nobody hands you a longer lock for free. You are paying for it, quietly, inside the quote.

The right length is the one that comfortably covers your closing date with a margin for the things that slip: an appraisal that takes longer to schedule than expected, a document that has to be re-requested, a seller who needs an extra week. Locking too short and extending is usually dearer than locking correctly once.

What Happens If It Expires

Nothing dramatic, and nothing free. When a lock runs out before closing there are generally two routes, and both belong to the lender rather than to you:

• An EXTENSION — the same rate held for a further period, at a cost, usually priced by the day or in short blocks.
• A RE-LOCK at whatever the market is doing now, which is the outcome that can genuinely hurt if rates have moved against you.

Some lenders also apply a worst-case rule on a re-lock — the original rate or the current one, whichever is less favourable to you — so an expired lock does not simply reset to today. Ask what your lender’s policy is at the time you lock, not at the time you need it.

Float-Downs, and What They Are Worth

A float-down is an option attached to a lock that lets you take a lower rate if the market improves by more than an agreed margin before closing. It is the answer to "what if I lock and rates fall".

It is not free, it is not universal, and it usually comes with conditions: a minimum improvement before it can be exercised, a window in which it can be used, and often only one use. Weigh it the way you would weigh any other insurance — what it costs against how likely you think the thing it covers is.

It is also a pricing decision rather than a rate decision, which puts it in the same family as discount points — and what actually moves your rate covers how those two levers interact.

The Changes That Re-Price a Locked Loan

This is the most useful part of the subject and the part almost nobody is told. A lock is attached to the loan as it was described. Change the description and the lock is re-priced — not cancelled, but recalculated, sometimes badly.

• The loan amount moves. A renegotiated price, a seller credit, a different down payment. Changing the amount changes the loan-to-value, and loan-to-value is one of the things the rate was priced on.

• The program changes. Switching from a conventional loan to an FHA one, discovering VA eligibility, or finding that the property qualifies for USDA all mean a new product and a new price.

• The property or the occupancy changes. A different house, a condominium rather than a single-family home, or a plan to rent rather than live in it. All three are priced differently.

• Your credit changes. Credit is often re-checked before closing. A new car loan or a maxed-out card between lock and closing can move you into a worse pricing tier.

• The appraisal comes in low. It changes the loan-to-value even if the loan amount stays put, and that can move the pricing on its own.

Which of those apply depends on the program you are in — conventional, FHA, VA and USDA each price their adjustments differently — but the rule underneath is the same everywhere: tell your loan officer before anything on that list changes, not afterwards.

When to Ask for One

On a purchase, the usual moment is once you are under contract and have a closing date to lock against — a lock with no closing date behind it is a countdown you cannot control. On a refinance, the usual moment is when the numbers you have been waiting for arrive, because there is no seller to wait on.

The question worth asking a loan officer is not "should I lock" in the abstract. It is: what does this lender charge for each length, what does an extension cost, what is the re-lock policy, and is a float-down available on my program? Those four answers turn locking from a guess into a decision.

This content is for educational purposes only and is not a commitment to lend. Lock periods, extension terms and float-down options are set by each lender and vary by program and by market; all examples shown here are illustrations rather than offers. A rate lock commits pricing for a period on a file that does not change, and every loan remains subject to credit approval and program guidelines. Alliance Lending Services, NMLS #304510. Equal Housing Opportunity.